United States Department of Agriculture

DEPARTMENT OF AGRICU

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Forest ServiceResearch & DevelopmentSouthern Research Station

e-General Technical Report SRS228

State Property Tax Incentives for Promoting Ecosystem Goods and

Services from Private Forest Land in the United States: A Review and Analysis

Michael A. Kilgore, Paul V. Ellefson, Travis J. Funk, and Gregory E. Frey

November 2017

Southern Research Station 200 W.T. Weaver Blvd. Asheville, NC 28804

Michael A. Kilgore, Professor, Paul V. Ellefson, Professor Emeritus, and Travis J. Funk, Graduate Research Assistant, Department of Forest Resources, University of Minnesota, St. Paul, MN 55108; and Gregory E. Frey, Research Forester, U.S. Department of Agriculture, Forest Service, Southern Research Station, Research Triangle Park, NC 27709.

Authors:

www.srs.fs.usda.gov

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Cover photo by Gregory E. Frey.

State Property Tax Incentives for Promoting Ecosystem Goods and

Services from Private Forest Land in the United States

A Review and Analysis

Michael A. Kilgore, Paul V. Ellefson,Travis J. Funk, and Gregory E. Frey

Abstract

Financial incentives provided by State property tax programs are a means of promoting ecosystem services from private forest land. Identified by this 50-State 2015 review, categories of ecosystem services frequently promoted by such programs are open space and scenic resources, conservation of soils and wetlands, protection and supply of fish and wildlife, protection and supply of water, production of timber and fiber products, recreational uses and resource preservation, and integrity and sustainability of forests. Focusing on the promotion of these services, preferential property programs required participants to meet certain conditions, including proof of legitimate ownership and use of forest land, appropriate size of parcel and forest conditions, implementation of a professionally prepared forest management plan, informing authorities of intent to harvest timber, engaging in reviews and inspections, and acceptance of the imposition of financial or procedural penalties. Implementation of these conditions required actions by various agencies in many levels of government, most frequently offices of local governments, citizen advisory committees and boards, tax review appeals and equalization boards, forestry boards and commissions, forestry divisions within State natural resource departments, and State departments of finance and revenue. In 2014, promotion of ecosystem services from private forest land involved 58 different State property tax programs enrolling nearly 210 million acres of forest land nationwide. With enrollment in any one program ranging from 400 to more than 413,000 participants, more than 3.85 million participants were the immediate beneficiaries. These participants cumulatively received more than $1.61 billion in annual property tax reduction for purposes of promoting ecosystem services. The annual value of this reduction was an acre-weighted average of $7.68 per acre.

Keywords: Ecosystem services, private forest land, property tax programs, tax incentives.

State Property Tax Incentives for Promoting Ecosystem Goods and Services from Private Forest Land in the United States: A Review and Analysisii

SUMMARY

Ecosystems are dynamic complexes that provide a wide variety of services that are important to human welfare. Forest ecosystems provide an array of benefits, including protection of soil and water resources, habitat for fish and wildlife, timber and wood fiber, aesthetically pleasing landscapes, and the storage of carbon which can help mitigate global warming. The Government often expresses an interest in promoting the production of ecosystem services through a variety of public policy tools, including property tax incentives. Administered by State or local governments, property tax programs have traditionally offered favorable property tax treatments as an incentive to promote the sustainable production of a wide range of forest-based ecosystem services. Unfortunately, information about the nature of property tax programs is neither complete nor fully understood; especially lacking is information about the type and magnitude of ecosystem benefits they promote and the degree to which landowners participate in such programs. With a focus on ecosystem services provided by private forest lands in the United States, the objectives of this review were to better understand the:

Type and breadth of ecosystem services promoted by State property tax programs

Structure and administration of State property tax programs

Organizations involved in the implementation of State property tax programs

Number of participants and area of forest land associated with property tax programs that promote ecosystem services

Magnitude of property tax program payments made to produce ecosystem services from private forest lands.

These objectives were accomplished by:

Gathering property tax information relevant to the promotion of ecosystem services

Identifying ecosystem services promoted by property tax programs

Determining the organizational structure, administrative processes, and performance requirements of property tax programs

Estimating the magnitude of tax incentive benefits available for the promotion of ecosystem services

Estimating the number of participants and the forest land area receiving tax incentive benefits

Confirming the accuracy of information resulting from the review.

Key findings from this national review and assessment of property tax programs include the following:

State laws stipulate a variety of forest ecosystem services to be promoted by property tax programs. They include the integrity and sustainability of forests, open space and scenic resources, conservation of soils and wetlands, production of timber and fiber products, protection and supply of fish and wildlife, protection and supply of water, and recreational uses and resource preservation. The production of timber and fiber products is the most frequently specified ecosystem service, followed by maintaining the integrity and sustainability of forests, open space and scenic resources, and protection and supply of fish and wildlife. Relatively few States have property tax laws that explicitly focus on conservation of soil and wetlands and the protection and supply of water resources.

Preferential property tax treatment favoring the promotion of ecosystem services implies adherence to various administrative procedures and resource management standards. These include ownership of parcel and acceptable land use, size of parcel or group of contiguous parcels, location of parcel and condition of forest, application procedures and management plans, official agreement to tax classification standards, compliance reports and follow-up inspections, and penalties for noncompliance with procedures or standards.

Preferential property tax programs focused on the promotion of ecosystem services also involves the administrative engagement of many government agencies at various levels (local, State, regional, and Federal). These may include the property tax administrative offices of local governments, citizen advisory committees and boards, tax appraisal offices and equalization boards, forestry boards and commissions, forestry divisions within State natural

Michael A. Kilgore, Paul V. Ellefson, Travis J. Funk, and Gregory E. Frey iii

resource agencies, State departments of finance and revenue, and a very limited number of Federal agencies.

Enrollment of forest land in preferential property tax programs is considerable. In 2014, 3.85 million properties containing nearly 210 million acres of forest land were individually enrolled in 58 State property tax programs that promote ecosystem services on private forest lands. Program enrollment ranged from 400 to more than 413,000 properties per program. Collectively, program participants in 2014 received an estimated $1.61 billion in annual property tax reduction, an average of $7.68 per acre, with some programs offering as much as $60 per acre each year. Eighteen programs provided less than $3 per acre in annual property tax reduction, while 16 programs provided more than $10 per acre.

The review also provided important perspectives about the broader statutory and administrative context within

which preferential property tax programs focused on private forests is implemented. For example, statutory authority focused on forests is: usually but a modest part of property tax law and rules generally, often more focused and better organized as a stand-alone law explicitly focused on forests; often replete with detailed statements of purpose and procedures or, conversely, very unclear about such requirements; often inclined to provide administrators substantial discretion in program design and implementation; often hesitant to assign implementing authority to a single agency or single level of government; and frequently modest in requiring firm connections between the amount of property tax reduction provided to program enrollees and the types, amounts, and diversity of forest-based ecosystem services actually promoted by a preferential tax classification.

State Property Tax Incentives for Promoting Ecosystem Goods and Services from Private Forest Land in the United States: A Review and Analysisiv

CONTENTS

Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .